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AON Q4 Earnings Beat on Strong Reinsurance & Health Solutions
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Aon plc (AON - Free Report) reported fourth-quarter 2022 operating earnings of $3.89 per share, which beat the Zacks Consensus Estimate of $3.67 and our estimate of $3.58. The bottom line also climbed 5% year over year.
Total revenues of $3,130 million were up 2% from a year ago and beat the consensus mark of $3,120 million and our estimate of $3,079.9 million. The top line comprised organic revenue growth of 5%, a 1% favorable impact from fiduciary investment income, partially offset by a 4% unfavorable impact from foreign currency translation.
The strong fourth-quarter results were due to strong retention and new business generation, supported by solid contributions from Health Solutions and Reinsurance Solutions. Growth in core P&C also benefited the results. However, the positives were partially offset by the frail performance of Commercial Risk Solutions and higher information technology expenses.
AON reported full-year 2022 revenues of $12,479 million, up 2% from the 2021 level. Total operating expenses declined 13% to $8,810 million. Operating earnings for the full year improved 12% to $13.39 per share. The effective tax rate was recorded at 16.7% for 2022.
Q4 Operations
Total operating expenses increased 1% year over year to $2,118 million due to 17% and 9% increases in information technology and other general expenses, respectively, partially offset by a 1% decrease in compensation and benefits. The reported figure was higher than our estimate of $2,080.3 million.
Adjusted operating income jumped 3% year over year to $1,038 million and beat our estimate of $1,030.4 million. Adjusted operating margin expanded 40 bps to 33.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 4% year over year on the back of strong performance in different geographical locations, robust retention, new business generation and management of the renewal book portfolio.
Double-digit growth in the Latin America and Canada regions in the fourth quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C and an average positive global exposure and pricing. The segment reported a year-over-year decline of 1% in total revenues to $1,822 million, which missed the Zacks Consensus Estimate of $1,869.4 million and our estimate of $1,86.5 million. Decreased external deal volume affected its U.S. retail brokerage.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growths in Strategy and Technology Group and facultative placements. Total revenues climbed 27% year over year to $281 million, beating the Zacks Consensus Estimate of $231.5 million and our estimate of $242 million.
Health Solutions: Organic revenues improved 7% year over year, driven by growth in core health and benefits brokerage, owing to solid retention, new business generation and management of its renewal book portfolio. Other factors contributing to the upside include double-digit growth in human capital on the back of data and advisory solutions. Total revenues of the segment increased 4% year over year to $678 million, beating the Zacks Consensus Estimate of $651.7 million and our estimate of $638 million.
Wealth Solutions: Organic revenues increased 6% year over year, driven by retirement growth. Increased advisory demand and project-related work supported the upside. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment declined 3% year over year to $353 million but beat the Zacks Consensus Estimate of $343.9 million and our estimate of $338.5 million.
Financial Position
AON exited the fourth quarter with cash and cash equivalents of $690 million, which increased from $544 million in 2021 end. As of Dec 31, 2022, Aon had total assets worth $32.7 billion, up from $31.9 billion on Dec 31, 2021.
At the fourth quarter-end, long-term debt was $9,825 million, which jumped from $8,228 million at the 2021 end. Short-term debt and the current portion of the long-term debt amounted to $945 million at the fourth-quarter end.
Cash flow from operations was up to $3,219 million in 2022 from the 2021 level of $2,182 million. Free cash flow increased 48% year over year to $3,023 million in 2022. Capital expenditure came in at $196 million, up 43% in 2022.
Capital Deployment
AON bought back 2.3 million Class A Ordinary shares for around $675 million in the quarter under review. Aon had around $6 billion of authorization left under its share repurchase program as of Dec 31, 2022.
Outlook
Aon expects to achieve double-digit free cash flow growth in 2023 and the long run. Organic revenues are expected to witness mid-single-digit or more growth for 2023.
At current foreign currency rates, AON expects to incur 13-cent and 12-cent unfavorable impacts per share in the first quarter and full year of 2023, respectively. Also, in the March quarter, Aon is expected to bear a $111 million interest expense.
Zacks Rank & Other Key Picks
AON currently has a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader finance space are Ares Capital Corporation (ARCC - Free Report) , Cboe Global Markets, Inc. (CBOE - Free Report) and American International Group, Inc. (AIG - Free Report) . While Ares Capital sports a Zacks Rank #1 (Strong Buy), Cboe Global and American International carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Los Angeles, Ares Capital specializes in rescue financing of middle-market companies. The Zacks Consensus Estimate for ARCC’s 2022 earnings suggests 18.1% year-over-year growth.
Chicago-based Cboe Global Markets is one of the largest stock exchange operators by volume in the United States. The Zacks Consensus Estimate for CBOE’s 2022 earnings indicates a 14.2% year-over-year increase.
Headquartered in New York, American International is a leading global insurance organization. The Zacks Consensus Estimate for AIG’s 2022 earnings has increased 1.8% in the past 30 days.
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AON Q4 Earnings Beat on Strong Reinsurance & Health Solutions
Aon plc (AON - Free Report) reported fourth-quarter 2022 operating earnings of $3.89 per share, which beat the Zacks Consensus Estimate of $3.67 and our estimate of $3.58. The bottom line also climbed 5% year over year.
Total revenues of $3,130 million were up 2% from a year ago and beat the consensus mark of $3,120 million and our estimate of $3,079.9 million. The top line comprised organic revenue growth of 5%, a 1% favorable impact from fiduciary investment income, partially offset by a 4% unfavorable impact from foreign currency translation.
The strong fourth-quarter results were due to strong retention and new business generation, supported by solid contributions from Health Solutions and Reinsurance Solutions. Growth in core P&C also benefited the results. However, the positives were partially offset by the frail performance of Commercial Risk Solutions and higher information technology expenses.
Aon plc Price, Consensus and EPS Surprise
Aon plc price-consensus-eps-surprise-chart | Aon plc Quote
2022 Performance
AON reported full-year 2022 revenues of $12,479 million, up 2% from the 2021 level. Total operating expenses declined 13% to $8,810 million. Operating earnings for the full year improved 12% to $13.39 per share. The effective tax rate was recorded at 16.7% for 2022.
Q4 Operations
Total operating expenses increased 1% year over year to $2,118 million due to 17% and 9% increases in information technology and other general expenses, respectively, partially offset by a 1% decrease in compensation and benefits. The reported figure was higher than our estimate of $2,080.3 million.
Adjusted operating income jumped 3% year over year to $1,038 million and beat our estimate of $1,030.4 million. Adjusted operating margin expanded 40 bps to 33.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 4% year over year on the back of strong performance in different geographical locations, robust retention, new business generation and management of the renewal book portfolio.
Double-digit growth in the Latin America and Canada regions in the fourth quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C and an average positive global exposure and pricing. The segment reported a year-over-year decline of 1% in total revenues to $1,822 million, which missed the Zacks Consensus Estimate of $1,869.4 million and our estimate of $1,86.5 million. Decreased external deal volume affected its U.S. retail brokerage.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growths in Strategy and Technology Group and facultative placements. Total revenues climbed 27% year over year to $281 million, beating the Zacks Consensus Estimate of $231.5 million and our estimate of $242 million.
Health Solutions: Organic revenues improved 7% year over year, driven by growth in core health and benefits brokerage, owing to solid retention, new business generation and management of its renewal book portfolio. Other factors contributing to the upside include double-digit growth in human capital on the back of data and advisory solutions. Total revenues of the segment increased 4% year over year to $678 million, beating the Zacks Consensus Estimate of $651.7 million and our estimate of $638 million.
Wealth Solutions: Organic revenues increased 6% year over year, driven by retirement growth. Increased advisory demand and project-related work supported the upside. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment declined 3% year over year to $353 million but beat the Zacks Consensus Estimate of $343.9 million and our estimate of $338.5 million.
Financial Position
AON exited the fourth quarter with cash and cash equivalents of $690 million, which increased from $544 million in 2021 end. As of Dec 31, 2022, Aon had total assets worth $32.7 billion, up from $31.9 billion on Dec 31, 2021.
At the fourth quarter-end, long-term debt was $9,825 million, which jumped from $8,228 million at the 2021 end. Short-term debt and the current portion of the long-term debt amounted to $945 million at the fourth-quarter end.
Cash flow from operations was up to $3,219 million in 2022 from the 2021 level of $2,182 million. Free cash flow increased 48% year over year to $3,023 million in 2022. Capital expenditure came in at $196 million, up 43% in 2022.
Capital Deployment
AON bought back 2.3 million Class A Ordinary shares for around $675 million in the quarter under review. Aon had around $6 billion of authorization left under its share repurchase program as of Dec 31, 2022.
Outlook
Aon expects to achieve double-digit free cash flow growth in 2023 and the long run. Organic revenues are expected to witness mid-single-digit or more growth for 2023.
At current foreign currency rates, AON expects to incur 13-cent and 12-cent unfavorable impacts per share in the first quarter and full year of 2023, respectively. Also, in the March quarter, Aon is expected to bear a $111 million interest expense.
Zacks Rank & Other Key Picks
AON currently has a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader finance space are Ares Capital Corporation (ARCC - Free Report) , Cboe Global Markets, Inc. (CBOE - Free Report) and American International Group, Inc. (AIG - Free Report) . While Ares Capital sports a Zacks Rank #1 (Strong Buy), Cboe Global and American International carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Los Angeles, Ares Capital specializes in rescue financing of middle-market companies. The Zacks Consensus Estimate for ARCC’s 2022 earnings suggests 18.1% year-over-year growth.
Chicago-based Cboe Global Markets is one of the largest stock exchange operators by volume in the United States. The Zacks Consensus Estimate for CBOE’s 2022 earnings indicates a 14.2% year-over-year increase.
Headquartered in New York, American International is a leading global insurance organization. The Zacks Consensus Estimate for AIG’s 2022 earnings has increased 1.8% in the past 30 days.